AXT Inc. AXTI appears to be entering a pivotal growth phase, with China emerging as a potentially significant — though increasingly complex — growth driver for its semiconductor substrate business. During the first quarter of 2026, the company reported that indium phosphide revenues surged to $13.6 million, largely fueled by demand from AI-driven data center applications.
Management highlighted that revenues from China’s indium phosphide laser market more than doubled sequentially in the quarter and may double again in the second quarter. This reflects accelerating investment across China’s rapidly expanding AI infrastructure ecosystem.
A major advantage for AXT lies in its local manufacturing presence through its subsidiary, Tongmei. Management emphasized that no export permit is required for domestic shipments within China, allowing the company to directly benefit from the country’s push to strengthen its domestic semiconductor and AI supply chain. The company noted that China’s AI infrastructure investments are accelerating as local firms aggressively build optical transceiver and photonics capabilities, positioning AXT as a critical supplier.
However, this opportunity comes with meaningful geopolitical risk. AXT acknowledged that export permits remain the biggest uncertainty for international shipments, particularly amid ongoing U.S.-China trade tensions, export restrictions, and an unpredictable regulatory environment.
Management admitted future revenue visibility remains constrained by permit timing and policy decisions outside the company’s control. While China’s AI boom could become a powerful hidden growth catalyst for AXT, its heavy exposure to geopolitical friction makes execution increasingly dependent on navigating an uncertain global semiconductor landscape.
Peer Update
Coherent Corp. COHR appears positioned to benefit significantly from China’s expanding AI and optical networking infrastructure demand, making China more of an opportunity than a near-term risk. Management highlighted exceptionally strong demand for AI data center products, a record backlog extending into 2028, and accelerating shipments of high-speed transceivers, OCS systems and photonics solutions. Its aggressive 6-inch indium phosphide capacity expansion, a critical technology differentiator, should support rising demand from global hyperscalers, including Asian markets.
However, China remains an indirect risk due to semiconductor supply-chain dependencies and geopolitical tensions. Still, Coherent's diversified customer base, partnership with NVIDIA, and strong long-term supply agreements suggest that demand tailwinds currently outweigh geopolitical concerns.
Amkor Technology’s AMKR 2026 outlook remains strong, driven by record revenues of $1.68 billion in the first quarter of 2026, AI-driven advanced packaging demand, and accelerating HDFO data center CPU ramps.
For Amkor, China increasingly looks like a potential operational risk rather than a pure opportunity. Management explicitly noted monitoring export controls, trade policy uncertainty, and advanced silicon and substrate supply disruptions, factors closely tied to China-U.S. semiconductor tensions.
While demand across smartphones, automotive, and AI compute remains robust, customer material delays and nonlinear loading suggest supply-chain fragility. Amkor’s strategy to diversify manufacturing through Arizona, Korea, and Vietnam reflects preparation for prolonged geopolitical uncertainty surrounding China’s semiconductor ecosystem.
AXTI’s Price Performance, Valuation and Estimates
Shares of AXTI have skyrocketed 337% so far this year compared with the industry’s 48.5% growth.
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From a valuation standpoint, AXT trades at a forward price-to-sales ratio of 26.51, significantly above the industry average. It is also higher than its five-year median of 1.48. AXTI carries a Value Score of F.
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The Zacks Consensus Estimate for AXT’s fiscal 2026 earnings implies a 165.9% improvement from the year-ago period’s level.
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The stock currently carries a Zacks Rank #2 (Buy). You can see the complete list of today’s Zacks #1 Rank (Strong Buy) stocks here.
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This article originally published on Zacks Investment Research (zacks.com).